Presenting a live 90 ‐ minute webinar with interactive Q&A Fair Lending Laws: g Evolving Regulatory and Litigation Landscape Responding to the Latest Challenges in Fair Lending Enforcement TUES DAY, MARCH 8, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f Richard J. Andreano, Partner, Patton & Boggs , Washington, D.C. Anthony J. Laura, Partner, Patton Boggs , Newark, N.J. Brian Montgomery, Partner, The Collingwood Group , Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Strafford Publications Fair Lending Laws: Evolving Regulatory and Litigation Landscape and Litigation Landscape March 8 2011 March 8, 2011 Richard Andreano, Jr. Anthony J. Laura Brian Montgomery 202.457.7517 973.848.5608 512.791.6363 RAndreano@PattonBoggs.com alaura@pattonboggs.com bmontgomery@collingwoodllc.com 5
Fed Loan Originator Compensation Rule • Adopted under Truth in Lending Act. – 75 Federal Register 58509 (2010). 75 F d l R i t 58509 (2010) • Applies to applications received by creditors on or after pp pp y April 1, 2011 for closed-end consumer credit transactions secured by a dwelling. – First or subordinate lien. – Dwelling does not have to be primary. – Closed-end reverse mortgages. • Based on Truth in Lending section 129(l) authority, but roots in fair lending. – Intent to address discretionary mortgage loan pricing by Intent to address discretionary mortgage loan pricing by eliminating yield spread premiums and overages. 6
Fed Rule—Loan Originator Basics • Defined with respect to a particular transaction. – Activity in transaction, not in general, governs. • Two elements: Two elements: – Arrange, negotiate or otherwise obtain an extension of consumer credit for another person. – Do so for compensation or monetary gain or in the expectation of Do so for compensation or monetary gain or in the expectation of compensation or monetary gain. • Managerial and administrative staff exception. M i l d d i i t ti t ff ti – Commentary does not appropriately reflect that both elements are required. – As drafted, suggests either element triggers loan originator status. 7
F d R l Fed Rule—Three Main Elements Th M i El t • Prohibition on compensation of loan originator for a covered transaction based on loan terms or conditions or d t ti b d l t diti a proxy for loan terms or conditions. • Prohibition on compensation of loan originator for a covered transaction by both consumer and creditor (or another party other than consumer) another party other than consumer)—i.e., no dual i e no dual compensation. • Prohibition on steering consumer to a consummate a covered transaction based on receipt by loan originator of greater compensation unless transaction is in consumer’s greater compensation, unless transaction is in consumer s interest. 8 8
F d R l Fed Rule—Discretionary Pricing Di ti P i i • Fed rule does not eliminate discretionary pricing. • In fact, the rule express provides that it does not limit a creditor’ flexibility in setting loan terms. • Fed staff informally confirmed mortgage brokers and loan officers can still establish loan terms with higher or lower rates or points from standard pricing, as long as their compensation is not based on the rates or points. • Fed staff noted fair lending issue • Fed staff noted fair lending issue. • Industry approach. Industry approach. 9 9
F d R l Fed Rule—CRA CRA • A common practice to generate loans eligible for CRA credit is for a bank to incent loan officers with higher dit i f b k t i t l ffi ith hi h commissions for loans made in low or moderate-income areas. • The Fed rule does not contain a CRA exception. • Fed staff informally advised that fair lending staff within Fed did not want Fed rule to address CRA. • Supplementary information to Fed rule includes the following: “The Board believes . . . that allowing compensation to vary with loan type, such as loans eligible for consideration under the CRA, would permit unfair compensation practices to persist in loan programs offered to consumers who may be vulnerable to such ff d t h b l bl t h practices.” 10 10
Fed Rule—Liability Fed Rule—Liability • The Fed adopted the rule under TILA section 129(l)(2) (15 USC § 1639(l)(2)) , which was added by the Home Ownership and Equity Protection Act (HOEPA) Protection Act (HOEPA). • TILA liability provisions are not the clearest in the world and have not been revamped as TILA evolved beyond a disclosure statute. b d TILA l d b d di l t t t • TILA section 130 refers to creditors and provides for: p • Actual damages. • Statutory damages of not less than $400 or more than $4,000. • For a class action lesser of $500 000 or 1% of net worth (DFA • For a class action, lesser of $500,000 or 1% of net worth (DFA revised to lesser of $1.0 million or 1% of net worth). • Damages for violations of section 129 requirements equal to sum of all finance charges and fees paid by consumer of all finance charges and fees paid by consumer. • Court costs and attorney’s fees. 11 11
DFA M DFA Mortgage Originator/Steering Provisions t O i i t /St i P i i General • Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) amends Truth in Lending Act to add both mortgage originator compensation provisions and steering provisions. – Public Law No. 111-203, sections 1401 to 1404. – Provisions are similar in some respects to Fed rule (as they P i i i il i t t F d l ( th include both originator compensation and steering provisions), but there are differences and certain differences are significant. – Underlying fair lending concern. y g g • Dodd-Frank provisions apply to a consumer credit transaction secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling or residential real property that includes a i t t d lli id ti l l t th t i l d dwelling, except for: – An open-end credit transaction; and – An extension of credit relating to a time share plan. An extension of credit relating to a time share plan. 12
DFA Mortgage Originator/Steering Provisions DFA M t O i i t /St i P i i Effective • • Dodd Frank expressly requires regulations to implement the steering Dodd-Frank expressly requires regulations to implement the steering provisions but not the mortgage originator compensation provisions. • I In supplemental information to Fed rule, Fed indicated it would l t l i f ti t F d l F d i di t d it ld implement Dodd-Frank provisions in a future rulemaking. – Fed or Bureau. • Dodd Frank outside date for required regulations under Title XIV: – Must be prescribed in final form no later than 18 months after p designated transfer date. • Based on designated transfer date of July 21, 2011: January 21, 2013. – Must take effect no later than 12 months after issued in final form. 13
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